Patching up PZ

In the 1980’s and mid 1990’s PZ-Cussons was amongst the bluest of blue chip companies listed on the (NSE), it was the cream on top of the conglomerate pie, but by the turn of the 2000’s rising competition, growing weariness and a

Michel Puchercos, MD, PZ Nigeria

general lack of spunk had caught up with the business leading to a company that was half past its prime. Nevertheless, the company’s recently released first quarter (Q1) 2017/2018 results tease the hope of a revival.

Cranking up operations

Operationally PZ is still in a bit of a bind. Gross profit margin slipped slightly from 35 per cent in the first quarter (Q1) of 2016/2017 to 32 per cent in the first quarter (Q1)2017/2018. The 8.6 per cent dip was as a result of rising cost of operations which reflected in a worsening foreign exchange situation as well as an increase in Sales General and Administrative expenses (SG & A’s), with administrative costs growing by a staggering 42 per cent. Meanwhile, operating profit slid by 16 per cent dropping from N2.2billion in Q1 2016 to N1.8billion in Q1 2017.

A good feature of the firms operations over the period was that its operating losses on foreign exchange transactions shrunk from N4.7 billion in Q1 2016/2017 to N1.8 billion in Q1 2017/2018. This, of course, was attributable to a more stable Naira to Dollar exchange rate in 2017 and improved access to foreign currency through the newly created Autonomous Foreign Exchange window (NAFEX) created by the Central Bank of Nigeria (CBN) in April. Easier access to foreign exchange at rates reflective of market fundamentals has helped importers reduce losses they had incurred by buying FX at exorbitant costs on parallel market trading platforms.

The company’s shrinking net working capital (the difference between its current assets and current liabilities) has led to financing troubles as its interest costs skyrocketed by 267 per cent from N94.8 million in Q1 2016/2017 to N348.3 million in Q1 2017/2018.The family products manufacturer’s stroll to the banks has come at a heavy cost, especially since revenues have grown only by a mild 12.8 per cent from N16.8 billion in Q1 2016/2017 to N18.9 billion in 2017/2018. Says one industry analyst, ‘ the recent recession put a squeeze on sales and price adjustments leaving many local companies with the narrow option of doubling down on costs; but for PZ even this was a tough call as it remained heavily dependent on foreign imports’.

Cranking up operations may take the company a while as a lot will depend on consumer demand rising sizably, foreign exchange rates declining steadily and administrative and finance charges being reeled in. However, PZ has successfully cut back its post tax losses and appears set for a much needed season of profitability to give shareholders reprieve from the dark operational tunnel they have had to soberly navigate. Loss after tax fell from a remarkable N1.58 billion in the last financial year to a much smaller N123 million loss in the first quarter of the company’s 2017/2018 business year.

PZ’s liquidity situation is not great but it is tolerable. The company’s grew from 1.6 in Q1 2016/2017to 1.5 in Q1 2017/2018. This reflects the fact that the company has one and a half times its current liabilities covered by its current assets, leaving a slim wriggle room for the company to meet short term obligations if its liabilities go up for any reason. A ration of 2 would have left investors a lot more comfortable, especially at a time of slow economic growth. Indeed PZ’s liquidity looks a jot darker when stocks of unsold goods and raw materials are removed from its current assets; the liquidity ratio dips to 0.7 in 2017/2018 down from 0.8 in 2016/2017, suggesting that quite a significant quantity of the company’s recent current assets are stacked up in its warehouses.

The shrinking of the company’s operating capital (its net working capital) from N18.2 billion in Q1 2016/2017 to N17.9 billion in Q1 2017/2018 reinforces concerns over declining company liquidity. But countering the problem is the company’s reduction in receivables (in other words debts owed to it) as its receivable days (the time it takes to get paid for sold goods) fell from 41.3 days in 2016/2017 to 39.4 days in 2017/2018, indicating that the business managers are reining in credit sales and pulling in cash. PZ has had problems with its cash flow since the beginning of last year as its cash flow dipped from a positive figure of N10.54 billion in 2015/2016 to a negative cash flow of N4.85 billion in 2016/2017. Over the first quarter of the 2017/2018 financial year the company has seen its cash and cash equivalents drop from N8 billion in Q1 2016/2017 to N2.2 billion in the contemporary period of the new accounting first quarter. If PZ is to end the current accounting year on a favourable note it must defreeze its liquidity situation by reducing its current liabilities and increasing its cash. This is no easy task as PZ’s corporate revenue growth depends heavily on an increase in consumer incomes which is not likely to happen in the last quarter of the year.

The good news about debt for PZ is that it does not have any large long term overhang. A long term debt liability seems nonexistent. Nevertheless the company does seem to be chalking up a sizeable short term borrowing liability from local banks. The company’s Q1 2017/2018 bank borrowings rose from none in 2016/2017 to a thumping N1.5 billion. The rapid rise in short term bank loans could either mean a spike in business requiring more short term funds to cover imports or a tightening of cash needed to meet normal operational expenses. If the problem is one of meeting normal operating expenses then the real challenge would appear to be growth in inventory or slow moving stock. The company’s inventory days (the average days it holds stock of goods) rose from 196.8 days in Q1 2016/2017 to 198.2 days in Q1 2017/2018. This does appear to be a strong enough reason for the company’s borrowings to escalate so fast and so high but it could explain part of the increase in the manufacturers short term bank loans.

Recession and its hard knocks

PZ’s 2017/2018 results will look a lot healthier than its previous year end but there are still serious worries about its sales growth and inventory stock increase. Sales of refrigeration and air conditioning appliances are not expected to grow significantly over the next nine months as recessionary headwinds remain despite a technical reversal. The economy by half year 2017 had grown at a positive 0.55 per cent as against a negative 1.5 per cent in 2016. The growth is still fragile as any dip in oil prices or oil volumes (Nigeria currently exports about 2 million barrels per day) could topple the revenue apple cart and drag the economy back into negative growth.

Real disposable incomes are still low as inflation remains in double digit (recent figures puts it at 16.01 per cent) and job loss figures are high meaning aggregate consumer demand is muted. Refrigeration and air conditioning are luxury goods and in recessions they suffer a major hit. Nevertheless, other products of the company such as its soap and detergent and home cleaning products may still show decent sales demand and reduce the severity of the impact of a demand slump on the company’s revenue.

With all said and done PZ will still have to cope with a difficult financial year, but if inflation rappels down and consumer real incomes recover during the year, the company could still end the season on a decent note; a refrigerator must just be the right boon to have at the end of blistering financial strain.

Recent posts

Second Republic lawmaker, Dr Junaid Mohammed has noted that President Muhammadu Buhari has performed poorly in office and it would be irrational for Nigerians to vote for him in 2019. Dr Mohammed who made the assertion in an interview with Vanguard on Saturday, also criticized Buhari for being a poor reader who according to him, […]

Former President Olusegun Obasanjo continued his visit to Bayelsa State after inaugurating some projects of the state government on Friday. The former president continued his tour of the state on Saturday with the laying of the foundation for the establishment of Azikel Refinery. The refinery is owned by Dr Eruani Godbless, a prominent businessman and […]

Quite notice, hate speeches and President Buhari’s Northenisation/Islamisation agenda by Professor Ben Nwabueze NATURE OF HATE SPEECHES In the aftermath of the divisions in the country caused by President Buhari’s Northernisation/Islamisation Agenda, as manifested in his lopsided strategic appointments that unfairly favour the North as against the South, and the complete exclusion of the South-East […]

OBINNA EZUGWU Veteran columnist and elder statesman, Chief Adetola Adeniyi has warned former Lagos governor, Senator Bola Ahmed Tinubu against supporting President Muhammadu Buhari’s second term bid, as according to him, such could mark the beginning of the end of his influence in Yoruba land. Chief Adeniyi who led the Global Intelligentsia for Buhari, a […]

President Muhammadu Buhari has strongly condemned Thursday’s massacre of innocent persons in Birane village, Zurmi Local Government Area of Zamfara State. The President stated this in a statement issued on Friday by his Senior Special Assistant on Media and Publicity, Mr Garba Shehu, following the death of at least 18 persons as a result of […]

Former President Olusegun Obasanjo on Friday visited former President Goodluck Jonathan at his home in Bayelsa State. Dr Jonathan welcomed the elder statesman who was in his home for a private dinner, in company with his wife, Patience. Earlier before the visit, former President Obasanjo inaugurated a government specialist hospital in the state and unveiled […]

The Nigerian National Petroleum Corporation (NNPC) said it supplied a total of 29.058 million litres of Premium Motor Spirit (PMS) popularly known as petrol to thirteen Northern states in three days. In its report on daily dispatch to filling stations made available to the News Agency of Nigeria (NAN) in Abuja on Friday, it named […]

An area in which different levels of governments in Nigeria have remained loudly silent and painfully indifferent is childhood disability. Children with disabilities and their parents have over the years ridden on waves of disillusion, despair, and decay. They constitute a tribe of the silent minority that the society has conveniently allowed to disappear into […]

The Infrastructure Concession Regulatory Commission (ICRC) has said that Nigerian ports were now witnessing more efficiency following the reforms of the Fedearl Government. Mr Chidi Izuwah, Acting Director-General of the commission said this during an inspection tour of facilities of the Nigeria Port Authority (NPA) in Rivers state. The acting DG said that the policy […]

World Bank has approved a 486 million dollars credit facility to Nigeria for electricity grid improvements, the lender said on Friday. “The investments under the Nigeria Electricity Transmission Project will increase the power transfer capacity of the transmission network and enable distribution companies to supply consumers with additional power,” the World Bank said. Nigeria’s power […]

The Nigerian Army has announced a cash reward of N3million for information on Boko Haram leader Abubakar Shekau. “The Nigerian Army will give out Three Million Naira (N3,000,000.00) cash reward for any credible information that leads to the arrest of Abubakar Shekau, the fugitive factional Boko Haram terrorists’ group leader,” a statement by the Director, […]

Hailemariam Desalegn, A day after President Jacob Zuma resigned as South African President, Ethio­pian Prime Minister, Hailemariam Desalegn, Thursday announced his resignation in a televised broadcast amid political turmoil in Africa’s fastest-growing economy. The announcement came just after the government released hundreds of political prisoners, including some of the most prominent opposition members in the country, […]

South Africa prepared to welcome wealthy former businessman Cyril Ramaphosa as its new president Thursday after scandal-tainted Jacob Zuma resigned under intense pressure from his own party. Zuma announced he had stepped down in a late-night television address in which he took some digs at the African National Congress (ANC) party that had threatened to […]

Jacob Zuma has finally bowed to pressure and stepped down from office as South African President The embattled president made the announcement in a broadcast to the nation on Wednesday evening, noting that he has stepped down “with immediate effect.” Zuma has been under pressure to step aside following allegations of corruption. On Tuesday, he […]

The Department of Petroleum Resources (DPR), said it fined one oil marketing company, A.Y. Maikifi, based in Kano, the sum of N1.2 billion for diverting 115 truckloads of the products Mr. Mohammed Saidu, Head, Public Affairs Unit, DPR Abuja Zone, disclosed this in Abuja, on Wednesday while addressing newsmen. He said that about 162 truckloads […]